Alaron Energy Comment

CHICAGO - Dec 10/07 - SNS -- Following is the energy futures comment from Alaron Trading Corp.

Slow ride! Take it easy as oil demand growth seems to be waning and oil is looking more like a top is in place. The big question is whether or not this market can close below 8700. As bad as the market has looked the failure to close below 8700 is giving the bulls hope that they can mount another rally.  Those hopes may depend on weather, the Fed, and oil inventories and those three factors are about as interesting as it gets.

The Fed meets tomorrow and because the jobs report was hot but not steamy hot it is likely that the Fed will only cut rates a quarter. Now there is also talk about another cut in the discount rate but unless Fed Chairman Ben Bernanke surprises us again. The likelihood that the dollar will fall much farther is a small possibility. That means the oil bulls will not get much help from the dollar and will focus on just how cold the weather gets. Despite the fact that we have had some nasty winter storms, the temperatures that have accompanied those storms were only moderately cold.   That means that heating demand has been relatively mild but we have to remember winter has just got started.

Last week some of the fears over tight heating oil supply were alleviated with a big increase in US distillates stocks in the weekly Energy Information Agency of the Department of Energy weekly supply report. Still the market was stunned because of a surprise 4 million barrel draw in crude supply. The market discounted that drop because it was speculated that fog in the Gulf of Mexico messed with the numbers. This weeks report will provide even more confusion considering that we will feel the impact from the Enbridge fire piplines.  Crude should build in the gulf and bigger build in the Gulf should offset part of the loss from the pipeline fire. Yet the bulk of the draw will be felt in the sensitive Cushing Oklahoma delivery point. Look For crude to fall by 3 million barrels.   Look for Gasolin e to r ise by 1.5 million barrels and look for heating oil to rise by 2 million barrels. Runs steady.

But the bulls are going to need some help. The demand growth for oil is slowing at a time when production is and should be rising. Success in Iraq is rasing hopes of more oil production and there are signs that the economy is slowing. The Credit Crunch is crunching demand growth and not just in the US but in other parts of the world as well. Bloomberg news reported that Japans third-quarter expansion was slower that the government initially reported the latest evidence growth is losing steam because of a slump in domestic housing construction and waning US demand.                  

 Bloomberg news reported the world's second-largest economy grew at an annualized 1.5% down sharply from an expected 2.6%. The number was revised to account for falling spending on factories and equipment. Companies ran down inventory and profits fell for the first time in five years. Japan is seeing slowing capital spending and is losing momentum. Economic and Fiscal Policy Minister Hiroko Ota said that rising oil prices are weighing on capital spending.

Major Japanese Companies are now talking about using less oil. Over the weekend a few announced they would do what they could to use less. If Japan is already feeling the effect of a slowdown in the US can China be far behind?

 The drop in crude is being felt already at the pump. The goddess of gas Trilby Lundberg reports that the national average gas price declined about 9 cents in the last three weeks.   The National average is now $3 Sign up for your free trial of Alaronenergies and the Phil Flynn energy blast.

Sell January crust at 8890 stop 9200

Sell January Heating oil at 25400  

Sell January RBOB at 229 stop 236

Bought January Natural gas at 710 stop 680

Phil Flynn

Alaron Research Team

800.563.9510

pflynn@alaron.com

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